June 17, 2021

Cultural Alignment – The Key to Successful Mergers & Acquisitions

So you’ve gone through a merger/acquisition. You might be thinking, what’s next? Mergers and acquisitions are great opportunities for growth – a chance for organizations to join hands in reaction to market forces, so that both organizations can survive and thrive and by combining resources, they infuse themselves with new brainpower and capacity.

But M&A’s aren’t all sunshine and rainbows

M&A periods are notoriously rocky times for the teams at the affected organizations. Especially the time right after an M&A takes place, often called the “postmerger integration” phase, is a time of tension and uncertainty. Researchers have had trouble pinpointing the exact success rate of mergers and acquisitions, but no matter who you believe, the numbers aren’t good — somewhere between 40 to 60 percent of M&As fail and may actually cost businesses money.

But the rate of M&As is rising, and Deloitte forecasts that this is a trend that is only going to continue. So, to paraphrase Jerry Seinfeld, what’s the deal with mergers and acquisitions? How can we make them better for our people, how does culture play a part, and how can we utilize a people-centered approach to ensure they are successes rather than busts? 

Setting up your organization for success post-merger

Let’s dig into this post merger phase a bit further. We’ll cover the following topics:

  • What most M&A deals overlook
  • The importance of focusing on people and culture
  • How leaders can guide by example
  • How to take a people-centered approach to M&A’s
  • And key ways that you can support your post-merger workforce

What most M&A deals overlook

Let’s do a quick flashback. I want you to think about the last time you read an article about a merger deal. There was probably a lot of talk about stock, revenue values and exciting new projects.

But there’s something we often don’t discuss — the people. Your stock value isn’t what’s going to steer you through a transformational, disruptive time in the market. Your brainpower will. Your people are the ones who will be coming up with new ideas. It’s their brains that will be doing the creative colliding with their new partners. 

Jeffrey Sonnenfeld M&A Quote

Even if we know that in principle, leaders often focus on financial projections, org charts, and revenue rather than people and culture aka the human element of work. This Balance Careers article puts it well: “Take at least as much time as you spend with your financial analysts and spend it with your employees. People care about where they work. Make them strategic partners.” 

When you really think about combining two disparate teams — their processes, their skill sets, their collective knowledge — and keep them working productively under a new reality it really comes down to people and culture. These two factors are what create organizational alignment, and ultimately lay the groundwork for a healthy organization. In fact, 95% of executives describe cultural fit as a key factor to successful M&A’s. Yet 25% cite a lack of cultural cohesion and alignment as the primary reason integration efforts fail. As companies combine forces to take on the new challenges the market has set in front of them, focusing on people and culture will be crucial.

Take the Amazon-Whole Foods acquisition in 2017. Considering the mutual benefits, it seemed like the ideal acquisition, however, because they failed to investigate cultural compatibility, the first few years were rife with conflict. The source of the conflict really came down to clashing cultures. Amazon is a “tight culture” – valuing efficiency, performance, and rules – and Whole Foods is a “loose culture” – valuing self-management, autonomy, and creativity. They ultimately were able to make the acquisition work, however, by not accounting for cultural differences, it almost sabotaged the union.

How leaders can guide the integration process

When you think about people and culture, you might automatically think of your or the acquirer’s HR department, however, push past that. People and culture is everybody’s business, and pulling off a successful M&A doesn’t just fall on the HR team. Often, companies look to HR to develop an internal communication strategy to navigate an M&A and leave it at that, however, what will be 10x more effective is support and involvement from the whole leadership team. 

To ensure that leadership is guiding the integration process well, consider creating a transition committee/taskforce. This would be a temporary team that would be charged with all things integration – planning, execution, and communication. This team should involve cross-functional leadership from both organizations, and a full time merger integration executive to lead them. Before the integration team gets started, senior executives should take time to establish a shared set of values that will guide their efforts. 

Below are some best practices for taking a people-centered approach to M&A’s that your integration team can put into practice.

Taking a people-centered approach to M&A’s

If most mergers and acquisitions are failing, perhaps it’s time to rethink how we do them by taking a people-first approach to M&As. Here are a few ways that you can do that:

Sift People-Centered Approach to M&A's

Practice empathy 

As mentioned, oftentimes organizations focus too much on the logistics of an M&A deal, which can lead to them ignoring the emotional state of their employees. This is a major pitfall that you want to avoid as it can impact employee well-being, engagement, and performance. As you learn about each other’s cultures – the processes, policies, procedures, and more – and unify a new set of behaviors, all of this will take time. Account for the time this will take and the mental/emotional burden this will have on your employees. Expect people to be less productive during this time, and understand the impact this can have. In short, be human.

Focus on culture

Ensuring cultural fit isn’t just about making sure that employees get along, rather it’s about understanding how work actually gets done by each organization. The goal is to agree upon a unified set of behaviors/practices that works for the newfound organization and to outline a cultural integration plan that everyone is bought into. Lack of cultural fit is a key factor of many M&A’s failures – according to SHRM, over 30% of mergers fail because of simple culture incompatibility. Knowing that, leadership needs to plan for potential cultural integration issues. In fact, a 2013 Mercer Survey found that 68% of organizations don’t have a systematic approach to identify gaps between organizational culture. So, it's crucial that you identify gaps and address them early on.

With this goal in mind, the first step should be for the transition team to learn about the culture of each organization. This can look like a culture audit/assessment during which both sides will take time to understand each others’ people, practices, and management. Go beyond questions like – What do y’all do for birthdays? Instead, discuss topics like how you communicate, how you make decisions, how you manage projects, and what software and tools you use. 

Determine what you do differently, what you do the same, and pros and cons of each approach. This will also help you determine which processes are in danger of duplication or disruption. Most importantly, identify potential areas of compromise and plan for how you'll resolve these points of difference. The more you can figure out ahead of time, the easier it will be for your new organization to hit the ground running. Some questions you can ask include:

  1. What are the core values that drive your organization?
  2. What needs to be true in order for your teams to work effectively together?
  3. How do departments collaborate?
  4. How are decisions made by leadership?
  5. What are your management practices?
  6. What is your performance management system?
  7. Etc.

An organization that successfully navigated this process is WellPoint-Anthem – a healthcare management company. When they were going through their merger, Larry Glasscock – CEO of Anthem (the acquirer) – acted early by kickstarting the cultural diagnosis process. They spent intentional time connecting and understanding each others’ behavioral styles and constructing an integration plan, and as a result, they’re still considered one of the most successful mergers to date.

Talk to your people 

Don’t just limit asking these questions to the transition team, rather solicit responses from the whole organization via surveys, focus groups, 1:1 interviews, etc. to get the whole picture. These questions will help you understand the common work norms and practices of each org, diagnose the strengths and weaknesses of each culture, resolve any major points of difference/tension, and ultimately codify a culture that works for the new organization. The answers to these questions and how your organization accounts for the responses will determine an M&A’s success. 

To ensure that these conversations are representative of both organizations and as unbiased as possible, this article has a few tips that you should keep in mind. 

Tip #1 - Be cognizant of a winner-loser dynamic, meaning oftentimes the acquirer can be seen as the dominant culture and can have an unequal influence on where your culture goes. Take the HP and Compaq merger in 2001. HP’s engineering-focused culture and Compaq’s sales-focused culture clashed from the get-go, and resulted in extended conflict that led to a loss of 13 billion dollars. Only when the company started focusing on implementing intentional cultural changes did things start looking up.
Tip #2 - Identify and utilize culture champions. Find out who your biggest advocates are and either involve them in your transition committee or empower them to help communicate and routinize your new cultural norms.

Communicate often and well

As you’re having conversations, be sure to keep an open and transparent communication line with all team members. Share the cultural integration plan with all employees and focus on the rationale behind any planned changes. Ask yourself: Do we have visible goals that we’re tracking against that we’ve communicated to the whole company? When and how will we update our whole team on our progress? Do we have a central document for managers to answer any questions that may come up? Determine what your employees need to feel confident during this phase and communicate your progress. 

How to support your post-merger workforce

While leadership learns about and creates new cultural norms, time hasn’t stopped for the rest of the organization. Rather it has fast forwarded to probably an overwhelming degree. Teams may be merging, job roles may be changing, coworkers may be leaving the organization, and tensions are probably running high. Here are a few key ways that your organization can empower teams, managers, and individual contributors to navigate the post-merger phase.

3 Key Ways to Support Your Post-merger Workforce

Equip individual teams

First, is ensuring that each team is equipped with the cultural integration plan. Once this is finalized from the integration team, work with your HR department to communicate this internally. Second, is helping each team understand how the M&A will affect their processes. M&A’s will naturally impact each department differently. For example, HR will need to navigate combining each company’s benefits plan, and will most likely be dealing with potential turnover/talent loss. IT will need to get all systems harmonized and integrate operations on a tight timeline, and Operations leaders will need to evaluate and synthesize disparate processes. Getting potential challenges on department leads’ radars, sooner rather than later, will be crucial to how quickly your organization will be able to achieve an equal (if not greater) level of productivity compared to pre-M&A. 

Create a people plan 

Oftentimes, M&A’s will result in the cutting of redundant roles or the merging of departments/teams and people plans will help you prepare for these changes. Begin by having each department head visualize a plan for their new team. Have them map out the weaknesses and strengths of each organization’s team, and the value each can bring to the other. Said another way, have them conduct a SWOT analysis of their newly merged or to-be-merged team. What are their strengths, weaknesses, opportunities, and potential threats? When that’s all done, have them ask themselves one more question: What does success mean for this new combined team or department? This will equip individual teams to work better, together, and will also help them identify the skills of new employees, better leverage the skills of current employees, and identify any skills gaps.

Help new coworkers find each other

Your employees will be welcoming a new pool of coworkers. It’s important to intentionally introduce people to their new counterparts. Clearly spell out who will be working together, and don’t leave those new connections to chance. Finding a new coworker, or an employee resource group/community to join, should be as easy as finding out whether the latest superhero movie you’re going to see has a post-credits sequence. 

[Related article: How to Encourage Internal Networking and Empower Your Remote Workforce

Give team members visibility into the whole enterprise. Communication tools are of course necessary, but they'll also need tools to discover who their new colleagues are, what skills they have, and how they can best work together to address new shared challenges.

Whatever solution you leverage, be sure to evaluate if it equips your people to find and discover one another. This calls for two considerations. One, does the tool allow people to share information about themselves? Their interests, skills, experience, and more? And two, does the tool make this information searchable and does it allow people to easily reach out and connect? 

With software like Sift, the ability to find and discover is made easy. Searchable employee profiles paired with a comprehensive org chart allow employees to share information about themselves – their skills, interests, and experience – and to easily search for and connect with their coworkers. 

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As you're navigating your merger/acquisition, don't let culture fall to the wayside. Whether you're a senior executive, part of the integration team, a manager, or an individual contributor, you have a role in establishing a shared culture that works for both organizations. You can start by sharing this post with others in your organization!

Editor’s note: This article was originally published in July 2019, and has been revamped and updated for accuracy and comprehensiveness in June 2021.

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As a global company, Ping Identity faces three main challenges: managing rapid growth, connecting their growing workforce, and transitioning to remote work. Learn how Sift has helped them with these challenges and supercharged a key element of their success - the ability to find and connect with the right people to work better, together.